House OKs ban on congressional insider trading

Legislation removes political intelligence group reporting provision

By

RonaldD. Orol

WASHINGTON (MarketWatch) — The House of Representatives on Thursday passed by a landslide vote of 417-to-2 legislation to curtail insider trading of securities by lawmakers and officials in the executive branch.

However, the package of measures dropped a key provision that would require so-called political intelligence firms to report who their clients are.

The legislation prohibits lawmakers and their families and staffs from buying and selling securities based on their possession of nonpublic information. The vote follows passage of similar legislation in the Senate last week.

It’s unclear when President Barack Obama will sign the legislation into law, as differences between the House and Senate versions must first be worked out. Obama has said he would sign the bill immediately after it is brought to him.

The legislation comes after a recent report on CBS’s “60 Minutes” that highlighted details about alleged insider trading by both Democratic and Republican lawmakers. That report was inspired by “Throw Them All Out,” a book published in November.

Democrats in the House had raised concerns in recent days about the expedited process Republicans employed to move the insider-trading legislation in the House. The legislation was brought up for a vote by the House using a procedure that did not allow amendments and needed a two-thirds-majority vote to be approved.

Democrats and at least one Republican, Sen. Charles Grassley, a Republican from Iowa, raised concerns that the House legislation did not the political intelligence reporting regulation.

The measure would have required these firms, which often provide financially sensitive political information to hedge-fund and private-equity clients that make investment decisions based on the data, to register with the House and Senate and report who their clients are and other details.

“It’s astonishing and extremely disappointing that the House would fulfill Wall Street’s wishes by killing this provision,” Grassley said.

Rep. Louise Slaughter, Democrat of New York and a sponsor of legislation banning insider trading, said Republicans removed the provision “working behind closed doors.”

“When it comes to K Street, it appears that Republican Leadership couldn’t stomach the pressure from the political intelligence community,” said Slaughter. K Street is home to many law and lobbying firms in the Capitol.

The House bill does ask the Congressional Research Service and the U.S. comptroller general to produce a report on the subject. A spokeswoman for Majority Leader Eric Cantor, a Virginia Republican, said there are concerns about the broad language of that provision. She said members of the media who report on federal and congressional issues to a paid subscriber list might have to register as political-intelligence consultants under the provision.

However, Grassley argued that Republicans in the House should propose a solution instead of “scrapping” the provision.

The Pelosi provision

The bill also included a measure inspired by an alleged trade made by the husband of House Minority Leader Nancy Pelosi.

The House bill of what is called the STOCK Act includes a provision dubbed the “Pelosi Provision” that restricts lawmakers from using their status to gain special access to initial public offerings of stock. The public has no equal right to participate in IPO shares, which are typically sold to the favored customers of underwriting banks. As a practical matter, institutional investors and high-net-worth individuals usually get access to IPO shares before most retail investors.

The “60 Minutes” report said Pelosi and her husband have participated in eight IPOs, including Visa’s
V, -0.01%
in 2008, which occurred just as legislation that would hurt credit-card companies came under consideration in the House.

Pelosi’s husband purchased shares of Visa at the initial IPO price of $44 a share, and the credit-card legislation under consideration at the time didn’t make it to the House floor for a vote, the report said. Pelosi pointed out that tough credit-card legislation eventually passed, two years later

An aide noted that Pelosi, a Democrat from San Francisco, backs the provision and added that the credit-card legislation in 2008 was reported out of the House Judiciary Committee at the height of the financial crisis and on the last day of the regular legislative session, adding that then-President George Bush wouldn’t have signed it into law.

Details and controversy

Like the Senate bill, the House legislation also requires lawmakers and a broad group of executive-branch and agency officials to report stock and commodities transactions onto searchable online databases. Read more about the Senate insider-trading bill.

The House bill requires electronic reporting of transactions no later than 30 days after receiving notification of a transaction and no later than 45 days after the transaction takes place. The Senate bill requires electronic disclosure within 30 days of buying and selling the securities.

House Republicans have said they anticipate that roughly 30,000 executive-branch officials will need to disclose their transactions electronically as part of the House bill.

In addition, the House bill would prohibit a lawmaker convicted of a felony from receiving government pension funds. Senior executives at government-seized housing giants Fannie Mae and Freddie Mac would be prohibited from receiving bonuses as long as the two firms are in a government conservatorship, according to another provision.

Slaughter first introduced an insider-trading bill in the House in 2006. Support for her bill exploded after the “60 Minutes” report.

Fred Wertheimer, president of Democracy 21, said he was upset about the way the House process barred members from adding amendments such as the provision on political intelligence to the bill. Wertheimer added that the Senate, unlike the House, worked in an open process allowing both Democrats and Republicans to introduce amendments to the bill.

“People in our community wanted [political intelligence] in the bill, and we strongly objected to the process that Cantor is using here, which is designed to let the will of the minority prevail over the will of the majority,” Wertheimer said. “If they had allowed a vote on political-intelligence provisions, it would pass.”

In the Senate, a number of controversial provisions were rejected or removed before they could come up for a vote. Lawmakers never got a chance to review an amendment introduced by Sen. Rand Paul, Republican of Kentucky, that sought to have lawmakers lose their federal pensions if they become lobbyists after leaving Congress.

They also rejected a measure introduced by Sen. Sherrod Brown, Democrat of Ohio, that would have forced lawmakers and their senior staff to divest themselves of any individual stock holdings or put them in a blind trust outside of their control. The House never considered these provisions.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.